US 7574392 B2
A system, method and apparatus are disclosed for investment using a deed of trust or mortgage instrument. The method disclosed includes access by a certified financial professional to financial and other data on loans secured by a real estate instrument of title, evaluation of the investments, and populating the fixed income portion of a client portfolio with selected secured investments. The apparatus disclosed comprises a signal bearing medium, an electronic user interface, a financial license verification module configured to verify a government issued credential of a financial professional, a data collection module configured to access and store investment data, a secured real estate loan data base comprising listings of available interest bearing loans secured by a real estate instrument of title, and a data evaluation module configured to compare and evaluate investment possibilities.
1. An apparatus for investment using a deed of trust instrument, the apparatus comprising:
a storage device storing executable code for a computer;
a processor executing the executable code for the computer, the executable code comprising
a financial license verification module interface verifying a government issued credential of a financial professional;
a data collection module accessing and storing investment data on trust deed loan investments and equity investments;
a client evaluation module generating a plurality of risk question scores from client answers to a plurality of risk questions, the risk questions consisting of a question on comfort of a client with the possibility of losing money one year in order to obtain a higher average annual return, a question on an importance of receiving income or gains in a lowest possible tax rate, a question on an importance of growth over current income, a question on an importance of being able to convert client investments to cash, and a question on holding investments during a down year, scoring the risk questions from one to ten with one indicating risk aversion, and generating recommended allocations for the trust deed loan investments and the equity investments based on the risk question scores by summing the risk question scores and calculating the recommended allocation to trust deed loan investments as 100% for a risk question score sum of 1 to 7, 80% for a risk question score sum of 8 to 14, 60% for a risk question score sum of 15 to 21, 50% for a risk question score sum of 22 to 28, 40% for a score of 29 to 35, 20% for a risk question score sum of 36 to 42, and 0% for a risk question score sum of 43 to 50, wherein recommended allocation to equity investments is calculated as 100% minus the recommended allocation to trust deed loan investments;
an income potential module eliminating trust deed loan investments and equity investments according to risk based on the risk question scores and ranking the remaining acceptable trust deed loan investments and equity investments by income potential; and
a data evaluation module comparing and evaluating returns from the trust deed loan investments and the equity investments using the recommended allocations.
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12. A method for investment using a deed of trust instrument, the method comprising:
verifying a government issued credential of a financial professional;
accessing and storing investment data on trust deed loan investments and equity investments;
generating, by use of a computer, a plurality of risk question scores from client answers to a plurality of risk questions, the risk questions consisting of a question on comfort of a client with the possibility of losing money one year in order to obtain a higher average annual return, a question on an importance of receiving income or gains in a lowest possible tax rate, a question on an importance of growth over current income, a question on an importance of being able to convert client investments to cash, and a question on holding investments during a down year;
scoring the risk question scores from one to ten with one indicating risk aversion;
summing the risk question scores;
generating, by use of the computer, recommended allocations for the trust deed loan investments and the equity investments based on the risk question scores by calculating the recommended allocation to trust deed loan investments as 100% for a risk question score sum of 1 to 7, 80% for a risk question score sum of 8 to 14, 60% for a risk question score sum of 15 to 21, 50% for a risk question score sum of 22 to 28, 40% for a risk question score sum of 29 to 35, 20% for a risk question score sum of 36 to 42, and 0% for a risk question score sum of 43 to 50, wherein recommended allocation to equity investments is calculated as 100% minus the recommended allocation to trust deed loan investments;
eliminating trust deed loan investments and equity investments according to risk based on the risk question scores;
ranking the remaining acceptable trust deed loan investments and equity investments by income potential; and
comparing and evaluating returns from the trust deed loan investments and the equity investments using the recommended allocations.
This application is a continuation-in-part of and claims priority to U.S. Provisional Patent Application No. 60/607,844 entitled “Investment Method Using Deed of Trust or Mortgage Instrument” and filed on Sep. 8, 2004 for Benson L. Schaub, which is incorporated herein by reference.
The present state of art relates to the investment management of funds under contract that is customarily conducted by a registered investment advisor or a properly licensed money manager. The method of investment management currently in use typically divides a portfolio between fixed income and equities, with the fixed income investments being bonds, bond funds, utilities, CDs, Treasuries, and other traditional fixed income instruments.
The embodiment of the new invention replaces or supplements the traditional fixed income allocation of investments used by investment advisors and money managers with short-term (1 to 3 year), high-yield loans, secured by first (occasionally second) position mortgages on real estate. These mortgage loans are called “deed of trust” investments. Deed of trust or mortgage instrument investments have traditionally been made through a state licensed mortgage broker. The embodiment of the present invention, however, adds deeds of trust to the investments offered to clients of a federally registered investment advisor or money manager.
The new investment method of the embodiment of the present invention can allocate any percentage of the fixed income portion of the investment account or portfolio into these deed of trust investments. A further embodiment may include an equity allocation of any percentage of the investment account. The equity allocation can be managed in any of the current methods of selecting and managing equity investments. The apparatus is designed to electronically implement the investment method.
The equity allocation and fixed income allocation of a managed account or portfolio may vary according to the style of the investment advisor or money manager. There may also be other allocations other than equity or fixed income. The number or type of asset allocations does not affect the novelty of this new invention or investment method. Under the present invention, some percentage of allocation of fixed income investment will be comprised of short-term (1 to 3 year), high-yield loans, secured by first (occasionally second) position mortgages on real estate.
In a further embodiment, the deed of trust or mortgage instrument investments may be made through the involvement of a state licensed mortgage broker, as is required by law in some states. The investment method of the present invention may also be administered through the apparatus of the present invention, with another custom designed program, or with a modified form of an existing financial program such as Quicken, money, or Peach Tree. Furthermore, this new investment method may employ a software program that grades the quality of the loans used for fixed income investments. Additionally, the stocks or equity investments, or other asset allocation investments, to be purchased may be evaluated with the use of a computer program.
In order that the advantages of the invention will be readily understood, a more particular description of the invention briefly described above will be rendered by reference to specific embodiments that are illustrated in the appended drawings. Understanding that these drawings depict only typical embodiments of the invention and are not therefore to be considered to be limiting of its scope, the invention will be described and explained with additional specificity and detail through the use of the accompanying drawings, in which:
Many of the functional units described in this specification have been labeled as modules, in order to more particularly emphasize their implementation independence. For example, a module may be implemented as a hardware circuit comprising custom VLSI circuits or gate arrays, off-the-shelf semiconductors such as logic chips, transistors, or other discrete components. A module may also be implemented in programmable hardware devices such as field programmable gate arrays, programmable array logic, programmable logic devices or the like.
Modules may also be implemented in software for execution by various types of processors. An identified module of executable code may, for instance, comprise one or more physical or logical blocks of computer instructions which may, for instance, be organized as an object, procedure, or function. Nevertheless, the executables of an identified module need not be physically located together, but may comprise disparate instructions stored in different locations which, when joined logically together, comprise the module and achieve the stated purpose for the module.
Indeed, a module of executable code may be a single instruction, or many instructions, and may even be distributed over several different code segments, among different programs, and across several memory devices. Similarly, operational data may be identified and illustrated herein within modules, and may be embodied in any suitable form and organized within any suitable type of data structure. The operational data may be collected as a single data set, or may be distributed over different locations including over different storage devices.
Reference throughout this specification to “one embodiment,” “an embodiment,” or similar language means that a particular feature, structure, or characteristic described in connection with the embodiment is included in at least one embodiment of the present invention. Thus, appearances of the phrases “in one embodiment,” “in an embodiment,” and similar language throughout this specification may, but do not necessarily, all refer to the same embodiment.
Furthermore, the described features, structures, or characteristics of the invention may be combined in any suitable manner in one or more embodiments. In the following description, specific details are provided. One skilled in the relevant art will recognize, however, that the invention can be practiced without one or more of the specific details, or with other methods, components, materials, and so forth. In other instances, well-known structures, materials, or operations are not shown or described in detail to avoid obscuring aspects of the invention.
The present invention may be embodied in other specific forms without departing from its spirit or essential characteristics. The described embodiments are to be considered in all respects only as illustrative and not restrictive. The scope of the invention is, therefore, indicated by the appended claims rather than by the foregoing description. All changes which come within the meaning and range of equivalency of the claims are to be embraced within their scope.
Deed of trust or mortgage instruments have traditionally been the purview of the state licensed mortgage broker, while the federally registered investment advisor or money manager relied on bonds, bond funds, utilities, CDs, and Treasuries as fixed-income investment vehicles. These investments, however, while secure, are typically relatively lower yield than equity type investments while being subject to a higher rate of taxation. This limitation has been a source of loss and frustration to individuals and organizations who either desire or are legally compelled to employ low-risk investment vehicles.
Deed of trust investments, however, particularly short-term loans secured by property, can be comparatively very secure and productive for fixed income type investments. Interest earned on a deed of trust can be expected to equal or surpass the average yield on even carefully selected equity investments. Furthermore, the value of deed of trust investments is secured by actual property at typically no more than a 70% loan to value ratio. Therefore, the rare default actually improves the position of the investor, who receives 100% of the value of the secured property, giving the investor a 30% increase over the value of the loan. All of these factors make the deed of trust and mortgage instrument investments of the present invention particularly appropriate as investment vehicles for client portfolio funds. The present invention makes these investment vehicles available to the clients of federally registered investment advisors and money managers.
The money manager 120 next selects 650 the avenue of purchase for the deed of trust 140. For example, some states require that mortgage instruments such as deeds of trusts that are provided by institutional or investment lenders to the general public be handled or placed by a mortgage broker, 500. However, individual investors or their investment advisor can place loans directly to borrowers, as illustrated in some embodiments of present invention. In one embodiment the money manager purchases 660 the deed of trust 140 directly from the mortgagee or other vendor. In a further embodiment the money manager purchases 665 the deed of trust 140 through a state licensed mortgage broker 500. The money manager receives 670 interest 170 on the deed of trust 130 into the accrued interest portion 180 of the client portfolio 110 and then pays out 680 interest payment 190 to the client 100.
Following the purchase, the money manager receives 770 the earnings 320 from the equity type investment 310 into the accrued earnings portion 330 of the client portfolio 110 and pays out 780 earnings due 340 to the client 100.
In the depicted embodiment the user may be a licensed financial professional, such as a money manager or federally registered investment advisor. The user interface 802 interacts with the user to request and accept information. The identity verification module 804 queries the user for a license number, password, or other unique identifier proving the registered or licensed status of the user. In a further embodiment the identifier may include a digital certificate evidencing the professional status of the user. The identity verification module 804 then verifies the user's identity. The verification may include matching with a list of registration or license numbers, verification of a password, or verification of a digital certificate. Upon successful verification the identity verification module 804 authorizes user access to the apparatus 800.
The data collection module 806 may collect client data supplied by the user, may search a database of loans secured by a real estate instrument of title, and may search the internet for other qualifying loans. The data collection module 806 may include a database search engine 810 and a web crawler 812. The data collection module 806 passes relevant data to the data evaluation module 814.
The data evaluation module 814 may include a client requirement evaluation module 816, a risk evaluation module 818, and an income projection module 820. In the depicted embodiment the modules comprise either standard or custom designed computer hardware and software. The data evaluation module 814 may incorporate prioritized gate arrays that order the sequence and weight of analysis. For example, if the client requirement evaluation module 816 indicates the client to be risk averse then the risk evaluation module 818 would pre-sort, rank, and even eliminate potential investments according to risk before passing the acceptable investments to the income potential module 820. If the client requirement evaluation module 818 indicates the client to be risk tolerant then the income potential module 820 would identify and rank the available investments according to income potential and pass the highest income investments to the risk evaluation module 818. In a further embodiment a user may pre-specify minimum acceptable income and maximum acceptable risk level.
The portfolio recommendation module 822 may receive evaluation information from the data evaluation module 814, formulate customized investment recommendations, and pass these to the decision interface module 824. The decision interface module 824 may interactively present the recommendations to the user and receive user input relative to the recommendations. The decision interface module 824 may further pass the approved purchase information to the purchase module 826. The purchase module 826 may be configured to issue a purchase order or other instrument to trigger the purchase of the approved investments. Upon completion of the purchase the purchase module 826 may pass the investment information to the accounting module 828.
The accounting module 828 may include an interest collection module 830 and a default foreclosure module 832. The interest collection module 830 is configured to manage interest payments from the portfolio investments. Such management may include electronic collection and banking of interest payments. The default foreclose module 832 would come into play only in the instance of a default on a portfolio loan. In such an event the foreclosure module 832 may trigger foreclosure on the real property securing the relevant loan.
The portfolio tracking module 834 is configured to monitor the performance of the portfolio investments. This may be done on a strictly objective basis or, in a further embodiment, in light of the client requirements. The portfolio tracking module 834 may pass information to the tracking feedback module 836, which may pass the information directly to the user through the user interface 802 or other avenue. In a further embodiment the tracking feedback module 836 may pass feedback information to the portfolio recommendation module 822. Basked on the tracking feedback the portfolio recommendation module 822 may generate new or revised recommendations.
In the depicted embodiment the certified financial professional interacts with the client to fill out the client questionnaire 10A, and enters the information into an electronic analysis protocol such as system 900 or apparatus 800. Analysis of the client's answers to the questions generates an allocation score 1010. An allocation table 1020 ties consecutive ranges of scores to percentage allocation of investment between fixed income and equity investments. The investment analysis system 1000 generates an individualized recommended allocation 1030.
The TD 10B illustrates electronically projected future values of the trust deed investment. The EQ 10C illustrates electronically projected future values of equity investment. The combined expectations values 10D illustrated electronically projected future values of the individualized allocation recommended for the client. The combined expectation values also projects income comparisons between the recommended allocation according to the Investment Advantage system and other standard investment vehicles such as Dow Jones and S&P 500.